Tuesday, August 23, 2011

Oswald Moore, chairman of the Bahamas Petroleum Dealers Association's (BPRA) says: The Bahamas petroleum sector should be deregulated and the Government-imposed margin/price controls removed

Gov't urged to end petroleum sector margin controls

Tribune242 Business Editor
Nassau, Bahamas

A leading petroleum retailer yesterday agreed that the sector should be deregulated and the Government-imposed margin/price controls removed, telling Tribune Business that no further strike action was currently being contemplated.

Oswald Moore, chairman of the Bahamas Petroleum Dealers Association's (BPRA) margin relief committee, told this newspaper in the wake of Friday's meeting with Prime Minister Hubert Ingraham that allowing gas stations and the oil companies to compete, and the market to set the per gallon price of gasoline and diesel, provided the best way forward for the industry.

"Yes, I would agree with that," Mr Moore responded, when asked by Tribune Business whether the Government should get out of imposing price controls on the petroleum industry.

"Most of the countries around us have already done that. Because they compete, they set the price in the marketplace."

Mr Moore said the current situation facing BPRA members was "impossible", adding: "We have been subsidising the industry now for a long time - for the past three-plus years."

Asked whether many Bahamians might question why petroleum dealers remained in the business, given the obvious difficulties in making a profit, Mr Moore replied: "Yes, they can wonder that, but when you consider the number of people who have mortgaged their homes and so forth to survive, they cannot walk away from it like that."

The crux of the issue is that gas station dealer margins, fixed at $0.44 per gallon of gasoline and $0.19 per gallon of diesel, are expected to not only generate a profit but cover rising fixed costs, such as labour, electricity bills and the various fees payable to the oil companies - rents, royalties and franchise fees and the like.

These rising costs have outpaced the fixed margins, a problem compounded by increasing oil prices. When the latter rises, Bahamian petroleum dealers are forced to turn to credit - cards, overdrafts, mortgages, bank loans and such like - to pay for their next fuel consignment, as the revenue streams earned on the previous, lower-priced inventory, are insufficient to cover the cost.

To compensate, BPRA members have been seeking a $0.30 increase in the per gallon of gasoline margin to $0.74, up from the existing $0.44 per gallon. On diesel, they were pushing for a $0.28 per gallon margin increase to $0.47, up from the existing $0.19. These were effectively 68 per cent and 147 per cent increases, respectively, in the gasoline and diesel margins.

However, the Prime Minister told Mr Moore at a Friday meeting that the Government, fearing the effects of a margin increase on the private sector and already-burdened consumers at a time of economic weakness and already-high gasoline prices, was not currently prepared to grant the BPRA's request.

The BPRA had previously indicated that failure to grant the margin increases would result in its members taking strike action, but this option appears off the table - for the moment.

"We are not looking at further strike action at the moment," Mr Moore told Tribune Business. "We think the Prime Minister's announcement was positive, and we will continue negotiations."

Mr Ingraham extended several 'olive branches' to the BPRA, according to a release from the Cabinet Office, promising that the margin increase request would be revisited once global gasoline and diesel prices reduced.

And the Government will also establish a Commission to assess gas station dealer complaints about alleged high operating costs, and other practices, imposed upon them by the three major oil companies - Esso, Texaco and FOCOL Holdings (Shell).

"I think it's something that needs to be done, but I don't want to say anything more about it at this time," Mr Moore said of the Commission.

Rents, royalties and franchise fees paid by dealers to the oil companies have long been a source of contention. Given that these payments come out of dealers' $0.44 and $0.19 per gallon margins, the argument has been that the wholesalers - the oil companies - actually earn more per gallon than their own $0.33 fixed margin.

But, more interesting perhaps, was that the Cabinet Office statement left the door open to deregulating the Bahamian petroleum industry, saying "a revision of policies" could ultimately lead to this happening.

Apart from Mr Moore, such a move was also backed by former Bahamas Chamber of Commerce president, Dionisio D'Aguilar, who urged that the Government and politics be removed from price control regulation of the sector.

"It's so silly and stupid the system they have in place because you have to go back to the Cabinet, and once you put the decision in the hands of politicians, it's a no-win for them," Mr D'Aguilar told Tribune Business.

"For them to give a price or margin increase, they will be accused of taking money out of the hands of the poor man and putting it into the hands of the gas dealers.

"As a result, the politicians are scared to make a decision to put up gas margins. You know this is exactly what is going through their brains. This is a politically horrible decision for them to make, and petroleum retailers thus become a victim of politics......

"This is why the process should not be in the hands of the Cabinet of the Bahamas. It's a no-win situation for them.

"The only way petroleum retailers can get a decision is by screaming and carrying on."

Urging the Government to "get out of making" decisions on gasoline margins, Mr D'Aguilar said this power should either be transferred to a body similar to the Utilities Regulation & Competition Authority (URCA), or a formula for small, annual increases established.

"They should set up a mechanism where margins increase according to the rate of inflation, or they are put up by two cents a year. If you went up one or two cents a year, no one would notice it," Mr D'Aguilar told Tribune Business. "Then you could review it, and come up with a mathematical formula in a systematic way.

"Work it out, make a decision and move on, so we don't have to come back to this."

August 22, 2011